I uncover a high-quality dividend growth stock that appears to be undervalued each week for Daily Trade Alert, which is a site that focuses on dividend growth investing, stocks, and unique investment opportunities. I’ve been writing for them for years now, and they’re just great over there. Each week, I publish an excerpt of my work, when it’s fresh off the press. That way, you readers are given the opportunity to check it out. The content is totally free. I hope you enjoy!
There was once a time when I believed that the traditional school-work-retire life path was the only one that existed.
You go through elementary, middle school, and high school. If you can afford it, college is next.
Then it’s a career where you punch buttons and/or push paper for 40 years.
At the end of it all, if you’re lucky, you have a modest retirement account bolstered by also-modest Social Security payments, whereby you’re able to pay for your bills and finally enjoy life.
Of course, by this time, you’re in the twilight of your life.
Your physical and mental capabilities have eroded significantly compared to what they were when you were in your 20s, 30s, and 40s.
Fortunately, I woke up a few years ago.
Image courtesy of: Stuart Miles at FreeDigitalPhotos.net.
Hi Jason,
I’ve been paying attention to HBI for a while now. I think it’s a great company and it reminds me of a business like Fruit of the Loom (which Buffett owns). Socks and underwear may be boring, but we all need to wear them.
Just like you mentioned, the one thing that worries me is the company’s debt. It’s debt/equity ratio is quite troublesome. That coupled with the fact that this company has no economic moat to speak of is part of the reason why I decided not to purchase it.
How does the existence or non-existence of a moat affect your decision with regards to buying companies? Are you more willing to purchase a stock at a smaller margin of safety if it has a wide moat?
Thanks for these articles every week!
Joe.
Joe,
Yeah, I hear you there on the debt. It’s definitely a concern. I was actually looking at both HBI and VFC last week for a potential stock purchase. But I went with VFC due in part to that much healthier balance sheet. Add in the higher yield, better (in my opinion) brands, stronger DTC business, and far lengthier dividend growth record… and my decision was made. The fundamentals are just better across the board for VFC. And I think the qualitative aspects are superior, too. But HBI is very much worthy of consideration here. And one could argue it’s more undervalued.
As for moats, I try to make sure every company I invest in has some type of economic moat. If a company doesn’t have competitive advantages, there’s no way to tell how it’ll hold up over the long haul. What looks great today might totally disappear tomorrow. You have to be able to protect your business. That said, I wouldn’t say that HBI has no economic moat to speak of. Their moat would be built around their brands (and other aspects). But as I just mentioned, I think VFC has greater brands, and so I think VFC has a wider moat. Morningstar, for instance, rates HBI as a narrow-moat company. I agree with that.
Thanks for dropping by!
Best regards.
At less than 43% payout for dividend, this will mean future growth for years to come. Very nice find.
BHL,
Definitely room for more dividend increases. 🙂
Cheers!
Hi Jason,
How did you arrive at a 3 year dividend growth of 43.1%? Basing off of the definition from investopedia, I computed the average of dividend growth over the last 3 years (2017, 2016 and 2015) and it came to 26.56%. Using the years 2016,2015 and 2014 the growth comes to 47.78%. Although that number is close to yours, I am curious to know how you calculated dividend growth since it is a bit off. I dont mean to find fault but rather correct my understanding of dividend growth.
Thanks
Jai,
I use David Fish’s CCC list for the dividend numbers. Mr. Fish’s list is referenced in the article.
Cheers!
Glad to see a writeup on HBI as I don’t see it often discussed on dividend blogs, with VFC seeming preferred instead. I first picked up shares at $23, about 2 days before the price cratered 16% after earnings, despite reporting record cash flow, operating profit, and net sales, and projecting records in 2017 as well as having hiked the dividend 36% in Jan. Good company, but poor timing on my part to say the least, but was able to average down with another purchase at around $19. Will see how things play out. Certainly the debt and inventory levels will be something to keep an eye on. Thanks again for your article.
10,
Yeah, HBI is a stock that flies way under the radar. Although I think VFC is a far superior company pretty much across the board, HBI is worthy of consideration. I honestly don’t know why the stock dropped so much after earnings. That mystifies me. And it wasn’t warranted. However, that’s just a good opportunity to average down and pick up more stock, assuming you have capital and room for it. 🙂
Thanks for dropping by!
Best regards.
Interesting choice, I usually like your picks, but I’m concerned on this one with the debt and the fact that to me it’s a category that can quickly fall out of favor for another cheap product. I also don’t like the fact it’s only had five years of dividend increases, I like the ten year club and up personally unless there are some solid competitive advantages that are difficult to emulate. Thanks for the article sir, as always I enjoy your take on things!
DD,
I hear you there on the debt. I share that concern, which is why I actually prefer VFC in this space (and why I own VFC instead).
That said, the valuation is really appealing here. And I try to cover as many stocks as possible. VFC is one I have to write about again here pretty soon, as my last article came about before the most recent dividend increase and earnings release. The stock looks even better (which is why I added to my position in the middle of last week).
Thanks for reading!
Best wishes.
Hi Jason,
I noticed they have $1B+ of intangible assets (aside from another $1B of goodwill). Do you happen to know what the intangible assets are for an underpants company.. just the brand name and logo? I assume they don’t have $1B worth of patents on how to keep your collar from getting wrinkled? I’m just curious.
Grant,
They go over their intangible assets on their 10-K. I’ll quote them:
“Trademarks, license agreements, customer and distributor relationships and computer software are our primary identifiable intangible assets.”
I don’t go over all of that in these articles because I’m just looking to hit the highlights in about 2,500 words.
Hope that helps!
Cheers.
I bought more VFC around $49. Great deal there. Hope it gets back down there again.
There isn’t much that seems cheap right now, but I am also nibbling on IFF currently. I took one nibble at $116 and then traded out a little of my UL into IFF at $121 after the merger jump of UL. IFF looks pretty good to me here. It is fairly valued, IMO, and it has the highest dividend yield that it has had in a while. Good prospects for long term growth and 2.1% yield, reasonable payout ratio around 40%, decreasing share count, and high quality rating with a morningstar price target of $130. Check it out!
Daniel,
Yeah, I agree on VFC. I think the valuation is quite appealing here. Really happy to have had a chance to average down on it.
IFF actually came up for me when a reader mentioned it at some point last year. If I remember correctly, the stock was somewhere around $130 or something. I looked at the valuation and it wasn’t particularly compelling, though I do like the business model a lot. Even now, the P/E, P/B, P/S, and P/CF ratios are all elevated off of their respective five-year averages. For me to buy a stock with a pretty low yield, I really like to see a great deal on it. Doesn’t seem to qualify. But I did put it on my watchlist a while ago. It remains there. Really solid business that flies under the radar.
Thanks for dropping by!
Best regards.
GEO is up over 108% since you sold 7 months ago. Are you looking to get back in? I never sold but wonder what you think of GEO now.
Dave,
Not looking to get back in. The report that came out on them was pretty scathing. If the government follows through with what they were talking about, the company is going to see a severe drop in their profit. It seems those facilities are better run by the government, significantly reducing the demand for the company over the long run. All in all, one wonders whether or not GEO should even exist. I’m of the opinion that the government is a poor substitute for a business in most cases, but this is arguably not one of those cases. Either way, it just isn’t for me.
Cheers!
Thank you for the reply Jason! You are an inspiration. I heard on CSPAN that the new Attorney General is going to reverse the decision. I guess I will hold on and wait. Thank you very much! P.S. If the deportations start, I wonder GEO will become a holding pen? I am more into buying future income streams, I really don’t care where they come from as long as they can continue to pay the dividend – nearly 6% yield, I can hold my nose. Take care!!!!
jason, do you publish your list of stocks in the”freedom fund’?’— if so i would like to view them?– i used to follow your blog when you lived in fla. but lost track of you until now’—- thanks.boyd jacobs
Boyd,
My entire portfolio (as of its last update) can be found here:
https://www.mrfreeat33.com/portfolio/
Hope that helps!
Cheers.